Saturday, December 5, 2009

Rabidly Bullish on Gold

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I'm not mildly bullish on Gold here, I'm wildly bullish on Gold here. I'm RABIDLY bullish on Gold here. A short-term correction has started and you can see my recent post on how I think it may play out. But I think after this short-term correction, Gold and Gold stocks are going to explode higher into 2010.

I think the 2005-6 bull run is a good template for what may happen. I'm expecting a rhyme, not an exact replica. First, here's a daily chart of the $HUI unhedged mining index up thru Friday's close:

And here's what I think is the equivalent from the 2005-6 $HUI bull run:

Now, here's what came next in the 2005-6 bull run:

As another point of comparison, here's the current $HUI bull run on a 14 month weekly chart:

And here's the 2005-6 bull run in the $HUI in weekly format:

And for those sticking with the metal and ignoring the risks inherent in the Gold miners, here's the corresponding run in Gold that supported this run in the $HUI during the 2005-6 move:

One of the things that has just turned me even more bullish are the following two charts of GLD and GDX - following are 3 year daily charts thru Friday's close. What has me excited about these charts? Check out Friday's volume compared with the last 3 years for both of these instruments:

Friday's volume for both GLD and GDX were the highest in their relatively brief histories. This trade is starting to reach critical mass. The more the participation, the stronger the moves can be. Now, some may put on their contrarian hat and fade the herd. If the trade is getting crowded, then it must be time to get out, right? Wrong. Being contrarian works at the extremes. Being contrarian in the middle of a move means you're going to get carried out on a stretcher.

There is obviously heavy participation in the Gold sector right now, which is bullish. I bet a lot of trailing stops got hit for momentum chasers on Friday. These momo chasers are going to come right back in and help propel another big move higher after this correction completes.

I think Gold is going to go to $1500 or higher before this move ends. Everything is lining up perfectly for a massive run in the price of Gold and Gold miners after this correction completes. The typical Gold bull run is from the fall to the spring. I think we have (finally) started a brief intermission in this move. On the next move up in the Gold price, I think Gold mining stocks are going to start to explode higher. The correction may take a week or it may take up to 6 weeks, but I for one will be buying heavily and going "all in" on this correction.

In my opinion, there are only two options for this strong decade old secular Gold bull market: we are either in the pre-mania phase or the mania phase has just begun. Either way, all risk in Gold is to the upside from now until the Dow to Gold ratio gets to 2 (and we may be going below 1 in this ratio). The herd is catching on and the Gold market is too small to accommodate the herd without some explosive price action to the upside. I think the move from September thru November was the opening act.